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Fidelity Digital Assets Enables Bitcoin as Collateral

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Fidelity Investments is moving beyond custody operations for digital assets with a new offering that lets clients on its digital assets custody platform pledge Bitcoin as collateral for cash loans. 

The loans are provided by third-party lenders, and initially include only those from BlockFi, a cryptocurrency lending platform and CME Bitcoin Futures block liquidity provider. BlockFi can offer its institutional customers the option to custody the Bitcoin pledged as collateral for their cash loans on the Fidelity platform. 

“We continue to see demand for increased capital efficiency from institutions that maintain long Bitcoin positions, and with this collateral agency capacity, our customers seeking that efficiency  can access more opportunity with the capital that they trust us to keep safe,” Christine Sandler, head of sales and marketing for Fidelity Digital Assets, said in a statement. She noted that “institutional investors are looking for a more comprehensive offering in the digital assets space.” 

These investors include hedge funds and corporate entities who are long Bitcoin as well as mining companies and merchants accustomed to keeping a significant amount of Bitcoin on their balance sheets while needing to pay operating expenses with cash, a Fidelity spokeswoman tells ThinkAdvisor. She said the new capabilities also have the potential to serve the over-the-counter derivatives market.

A Fidelity survey of nearly 800 institutional investors in the U.S. and Europe conducted by Greenwich Associates from November 2019 to early March 2020 found that 36% invested in digital assets and that U.S. investors who owned digital assets increased their share from 22% in 2019 to 27%.

Fidelity Investments is one of the first traditional financial firms to embrace the digital currency market and blockchain. It launched the Fidelity Digital Assets platform in 2018; its donor-advised fund, Fidelity Charitable, accepts Bitcoin and other digital currencies as donations; and in August it launched a Bitcoin fund, the Wise Origin Bitcoin Index Fund I, which is available to  accredited investors.

In early November, the privately held asset manager publicized plans to hire more technical staff to work on the expansion of its Digital Assets platform.

Fidelity has more than 100 clients using its digital assets businesses, including hedge funds, family offices, RIAs and corporate clients, the spokeswoman said. Bitcoin remains their primary focus but Ethereum and the tokenization of traditional investment instruments will likely be added next, a spokeswoman said. 

As of October 31, 2020, Fidelity had $8.7 trillion in assets under administration, including 3.4 trillion under discretionary management.

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